September 23, 2008
New Rules on Bank Stock Purchases
A crisis reveals the weakness in some silly rules and drives government, under extreme pressure, to sanity. The rules on private equity purchases of bank stock, recently revised, are an example. Prior to the new rules, if a private equity fund bought a so called "controlling" stake in bank stock, the Fed classified the fund as a "bank holding company" subject to direct federal regulation (including investor limitations). A "controlling stake" was liberally defined to include 10% of voting stock, board seats, and even talks with CEO. Private equity funds, holding $400 billion on the sidelines in cash, have stayed away from bank stocks -- and banks need cash. So the Fed redefined "controlling" stake. A private equity firm can own 33% of the stock as long as only 15% is voting, can hold two board seats (if there is another larger shareholder) and can hold talks with the bank's CEO. Will private equity now get in? More now than before.
September 23, 2008 | Permalink
TrackBack URL for this entry:
Listed below are links to weblogs that reference New Rules on Bank Stock Purchases: